The Mini-Budget Speech - Far Better than Expected

On Wednesday, Finance Minister Enoch Godongwana delivered his Mini-Budget Speech (Medium Term Budget Policy Speech – MTBPS).

Never designed to give the extended detail of the main Budget Speech in February each year, it does share the overall strategy for the next three years. This year, it carried added significance due to the substantial deterioration in the country’s fiscal health within the framework of a weakening global environment.

The Minister was frank in acknowledging SA’s weaker fiscal position, where he responded with much emphasis on fiscal consolidation, which will be implemented through spending reductions and efficiency measures across the government. This is certainly not a populist approach and is based on sound economic principles.  

Revenue collections are now expected to be R56.8 billion lower than last year, but this is still well ahead of the consensus expectations before the speech. The lower revenue collection is mainly due to lower commodity prices, weaker global growth, increased load-shedding and capacity constraints in infrastructure, most notably in the mining sector.

The budget deficit is now expected to come in at 4,9% of GDP for financial years 2023 and 2024, with debt projected to stabilise at 77,7% of GDP in 2025/6, compared to 73,6% in the 2023 Budget – and well under the 95% level feared during the Covid19 hard lockdowns;

Overall, the market favoured the news as, for many, it was far better than expected, and both bond markets and the Rand currency strengthened strongly Wednesday afternoon immediately after the speech.  

 Two-Pot Retirement System

Last week, the Treasury announced that the new two-pot retirement system for persons not yet retired has been postponed to March 2025;

Taxation Laws Amendments | Two Pot System Explained 3 August 2022

Last year, on 3 August 2022, I shared this summary;

The Draft Taxation Laws Amendment Bill, Draft Revenue Laws Amendment Bill and Draft Tax Administration Laws Amendment Bill, with accompanying Explanatory Memoranda and Media Statement, was released on Friday, 29 July 2022.

The Draft Explanatory Memorandum gives an excellent background to the objectives of having a “two-pot” system specifically for pre-retirement funds.  

(Where you would like to receive the detailed legislative releases here, you are welcome to ask me to send these through to you).  

This should be seen as part of the overall retirement reform that started in 2012, which has seen the harmonisation of the tax treatment of contributions to funds as implemented from 1 March 2016, and then the preservation of retirement funds at retirement through annuitisation that became effective from 1 March 2021.

Creating a new “retirement pot” and a “savings pot” that can each receive retirement contributions is seen as necessary to encourage further retirement savings.

In practice, many members of the public know that they need to save for retirement but hold back from doing so using formal retirement funds with the matching tax deduction - because they fear tying up the funds until age 55 when, for various reasons, they are unsure what the medium term holds. These reasons could be very valid, where some examples are job insecurity or putting children through university, possibly needing the funds elsewhere.         

Practically, the “two-pot system” intends to alleviate these pressure points. These separate pots can be housed within the current types of available funds, and the intention is that persons can withdraw from the savings pot at any time.

The proposed amendments, now made public for comment, are envisaged to come into effect on 1 March 2023 (3 November insert: moved to March 2025) now and will apply regarding amounts only contributed to retirement funds on or after that date.

(These proposals do not affect post-retirement funds for persons retired and already withdrawing on their retirement savings). 

FRIDAY FOOD FOR THOUGHT